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War for ETF Mastery Widens With WisdomTree Buyout in Europe

WisdomTree Investments Inc. agreed to buy ETF Securities’ $17.6 billion funds business in Europe, making it the ninth-largest ETF provider in the world.

Nov 13, 2017

By Rachel Evans

(Bloomberg) --The next front in the battle to dominate exchange-traded funds is just across the Atlantic.

WisdomTree Investments Inc. agreed to buy ETF Securities’ $17.6 billion funds business in Europe, the company said in a statement Monday. The deal would make New York-based WisdomTree, already the seventh-largest ETF issuer in the U.S., the ninth-largest provider of exchange-traded products in the world. The $611 million cash-and-stock acquisition should close next quarter, according to the statement.

With more than 2,000 ETFs competing for assets at home, U.S. issuers are increasingly looking overseas for growth, and Europe has emerged as their destination of choice. MiFID II, a new regulation that takes effect in January, is set to boost both the trading and use of ETFs. European funds could swell to 1 trillion euros ($1.2 trillion) by 2020, up from just 550 billion euros as of the end of last year, according to Morningstar Inc.

“You need the global footprint to talk to the global investor,” Jonathan Steinberg, WisdomTree’s chief executive officer, said by phone. “This just allows us to be a much more competitive and forceful organization.”

MiFID Push

WisdomTree’s agreement to purchase London-based ETF Securities is its second in Europe. It bought a stake in Boost in 2014, a deal that gave the firm a platform to issue in the region. The latest purchase gives it clout. ETF Securities runs more than 300 products, focused on commodities, currencies and leverage.

WisdomTree will consider selectively bringing some of those strategies to the U.S., Steinberg said. The tie-up makes it less likely that the issuer, a repeated subject of acquisition speculation, will itself be taken over in the near term, according to Goldman Sachs Group Inc. WisdomTree’s European business had been operating at a loss, said Steinberg.

The company isn’t the only one tilting at Europe. Invesco Ltd.’s PowerShares unit acquired Source in August to cement its foothold in the region, where BlackRock Inc. dominates with almost five-times as many assets as its nearest competitor. MiFID II made expansion more urgent, according to PowerShares’s Dan Draper.

The new rules effectively bar financial advisers from accepting inducements to favor one fund over another, leveling the playing field for ETFs and mutual funds. Traders must also provide more information about their transactions, adding transparency and liquidity to the secondary market for ETFs.

“The regulatory push around the world has been very constructive for exchange-traded products,” said Steinberg. “On a merit basis, they are taking over asset management and so that was one of the elements” in making this acquisition.

--With assistance from Elena Popina.To contact the reporter on this story: Rachel Evans in New York at [email protected] To contact the editors responsible for this story: Nikolaj Gammeltoft at [email protected] Eric J. Weiner, Andrew Dunn